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Oil jumps to 10-month high amid tight supply forecasts by Opec, IEA

Global energy bodies see demand growth continuing to hold

Published: Wed 13 Sep 2023, 3:34 PM

By
Issac John

Oil pumpjacks in Los Angeles, California. The EIA has forecast demand growth at 1.81 million bpd for 2023 and 1.36 million bpd next year. — AFP

Crude oil prices continued their surge with global benchmark Brent shooting above $92 per barrel and US West Texas Intermediate crossing $89, both for the first time in 10 months after forecasts by three global organisations, including the Organisation of the Petroleum Exporting Countries, the International Energy Agency, and the US Energy Information Administration (EIA) predicting that surging demand and recent price gains could stick through the remainder of the year.

The tight market forecasts came just a week after Opec + group, including Saudi Arabia and Russia, announced that they would jointly remove 1.3 million barrels per day from the market till the year end.

Soon after forecasts of a continued tight market condition, London-traded Brent settled Tuesday’s trade at $92.06, up $1.42, or 1.6 per cent. It earlier hit $92.39, its highest since November 2022.

On Wednesday, Benchmark Brent futures rose 57 cents, or 0.62 per cent, to $92.63 a barrel at 1006 GMT while US West Texas Intermediate (WTI) crude gained 57 cents, or 0.64 per cent, to $89.41.

In its outlook, the 13-member Opec forecast robust growth in global oil demand in 2023 and 2024, saying major economies were expected to do better than expected — despite signs that global inflation was surging again from crude prices nearing triple digits. The group’s monthly report maintained its forecast for global oil demand growth in 2023 at 2.44 million bpd. For 2024, the forecast predicts economic growth of 2.6 per cent (unchanged) and a global demand increase of 2.25 million bpd.

According to Opec, the overall crude output rose by 113,000 barrels per day in August, reaching 27.45 million barrels per day. The increase was primarily driven by higher production in Iran and Nigeria. The report also mentioned that, based on secondary sources, Saudi Arabia’s crude oil output decreased by 88,000 barrels in August to 8.97 million bpd.

Both the IEA and Opec are optimistic about Chinese demand over the course of 2023, leaving their global demand estimates for this year and next largely unchanged.

The IEA estimates 2023 global demand to grow by 2.2 million bpd, while Opec expects growth of 2.44 million bpd. For 2024, the contrast is wide. The IEA expects growth to slow sharply to 1 million bpd, while Opec has a far rosier estimate of 2.25 million bpd.

Meanwhile, the EIA has forecast demand growth at 1.81 million bpd for 2023 and 1.36 million bpd next year. It projected global oil output would rise from 99.9 million bpd in 2022 to 101.2 million bpd in 2023 and 102.9 million bpd in 2024, while world demand will rise from 99.2 million bpd in 2022 to 101.0 million bpd in 2023 and 102.3 million bpd in 2024.

The Paris-based IEA, which represents oil consuming countries, acknowledged that the current bull fervor in the market could indeed take prices higher in the near term.

“The global economic outlook remains challenging in the face of soaring interest rates and tighter bank credit, squeezing businesses that are already having to cope with sluggish manufacturing and trade,” the IEA added.

“The market is really tightening in the second half of the year,” Toril Bosoni, head of the IEA’s oil market division, said in a Bloomberg Television interview. “We’re at risk of seeing continued tightness in the market, especially for distillates, coming into the winter months.”

However, the industry-funded American Petroleum Institute said nationwide US crude inventories increased by 1.17 million barrels last week, with gasoline and distillate stockpiles also expanding.

“Crude prices are rallying after the Opec monthly report showed the oil market is going to be a lot tighter than initially thought,” said Ed Moya, analyst at online trading platform Oanda.